"You kind of have to learn how to laugh again" – award-winning Icelandic writer Guðrún Eva Mínervudóttir comments on the backlash that the Panama Papers have had on her home country, Iceland. Huge spontaneous protests arose in Reykjavik this week following revelations about the offshore businesses of various public figures. On Tuesday, the Icelandic Prime Minister resigned. A personal account.

When Sigmundur Davíð Gunnlaugsson came into the spotlight as leader of the Progressive Party many people, myself included, met him with incredulous laughter. You cannot walk around talking nationalistic nonsense and other kinds of obvious bullshit and get elected, we thought, everyone can see through this. People value democracy. We want someone who is at least puts on a good act (haha).

The leader of the Independence Party, Bjarni Benediktsson, was seen as more of a threat. Although clumsy, shady in business and not very charismatic, he was at least handsome, less obviously unhinged than Sigmundur and from a family seen by many as the natural rulers of the island.

We all stopped laughing when they both started gathering momentum. It became obvious that people were buying into Sigmundur's bizarre promises to give them money (ha!) in the form of tiny reductions to their mortgages. Never mind those who own no property and are left to fend for themselves in an impossible rental market. I never expected to see such incompetent clods bully and lie their way to power and then wield it so blatantly against the people – solely in the service of the very rich.

How could this happen? Iceland got pummelled in the financial crisis. People were confused and angry, but mostly frightened. Perhaps, when we are afraid, we have a natural urge for a "strong leader" (read sociopath) to protect us through any means possible? Perhaps this is only human and the only remedy is to stop being so afraid (everything is and will be OK).

After the election in May 2013, all bets were off. The two ruling parties wasted no time when it came to sucking money out of welfare, education, the arts and all those kinds of service that people expect in return for their taxes. The money went into the deep pockets of the rich, this much was obvious to everyone except those who could not admit that the last election had been a mistake. We, as a nation, found ourselves held hostage by bandits. What people did not realise was just how deep these pockets were, that they reached all the way to the Caribbean. (The ironic thing is that people are now relying on the Pirate Party to save the day.)

When the Panama Papers were brought to light (thank goodness) many of those who still clung to the idea of a fatherlike leader – one that "gave them money" and stood up to "greedy" foreigners – finally had to open their eyes and get the message. The truth is now laid bare for anyone to see: hundreds of billions of Icelandic Krona have been sucked out of welfare and other vital institutions. That's a lot of blood – a lot of hospitals and schools –and many times the lifetime earnings of the average worker.

So far, the Panama Papers have revealed that at least 600 Icelanders hoarded money in tax haven, around 0.2% of the nation as a whole (compared with, for example, 450 Canadians – around 0.00014% of their population). That's not like a few leeches trying to suck the blood of an elephant, but more like a cat being slashed with machetes. You kind of have to learn how to laugh again, at the ridiculousness of it all. The government is more than corrupt; these people are truly out of their minds. Their whole conduct is treason, if there ever was such a thing.

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Guðrún Eva Mínervudóttir has written five novels and won the Icelandic Literary Prize 2012 for Everything Is Woken with a Kiss (Allt með kossi vekur).